San Jose pension reform battle could affect county election

SAN JOSE -- This week's trial to determine the legality of San Jose's Measure B pension reform could end up having an impact on Santa Clara County's District 2 supervisorial race.

Timing is everything, and voters are casting their ballots while San Jose's battle is in the spotlight.

Election Day is Tuesday, but early voting is underway with residents choosing between labor leader Cindy Chavez, who opposed Measure B, and water district communications manager Teresa Alvarado, who voted for it.

The measure affects only San Jose workers, but the District 2 boundaries fall within the city, and its political reverberations are being felt not only throughout the county, but across the state and country.

Teresa Alvarado, left; Cindy Chavez

The county, after all, is facing its own harrowing fiscal cliff: a $1.8 billion unfunded retiree health care liability and an additional $2.3 billion in unfunded pension payments.

"Sometimes you get a salient issue that pops up at a critical point in an election," said San Jose State political-science professor Larry Gerston, who is curious whether the issue will drive more voters to the polls. In a low turnout election like this one, he noted, 400 or 500 votes could make a big difference.

Gerston said whether you criticize or praise the city's Measure B, "at least it has acted on it." Measure B, which was overwhelmingly approved by city voters, seeks to reduce pensions for new hires and make current employees contribute more of their pay to their pensions unless they switch to a lesser benefit.

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The board of supervisors next month is expected to address the retiree health care debt through a county ordinance, and whoever wins the District 2 race will vote on that.

But unlike San Jose's employees, the debt rate for the county's employee pensions is controlled by CalPERS, the state government pension system. While it underwent some pension reform last year, county officials say they can negotiate larger pension contributions from employees and negotiate cuts in benefits. But that also would be a decision by the board.

District 2, the county's poorest district -- with a $58,000 median income per household -- is the area that depends the most on county programs and services. Left unchecked, the combined $4.1 billion liability will eat into those services and threaten county jobs.

Four options remain: pass more taxes, which many consider unlikely in the aftermath of last fall's voter-approved $500 million Measure A sales tax to bolster county health and welfare programs; eliminate programs and services; reduce employee benefits; or ask employees to pay more for their benefits.

Gerston expects the district's pro-Measure B voters to lean toward Alvarado; her campaign is backed by business and real estate groups who supported the measure. Meanwhile, Chavez's campaign is supported by labor unions who sought to defeat Measure B.

As soon as Measure B passed, San Jose employee unions sued to prevent it from taking effect. A Santa Clara County Superior Court judge is hearing the case this week, but it could be months before the judge issues a ruling, which is expected to be appealed.

Unions contend that Measure B is unfair, pointing to past court decisions that say employee pension rates are protected both for work already rendered and for the rest of their careers.

Supervisors Ken Yeager and Dave Cortese are labor allies of Chavez's, and if she is elected, Gerston said, "you'd have a fairly solid three-person majority that may be more cautious about doing anything more substantive on pension reform, at least in the short term." Supervisor Mike Wasserman, the board's lone Republican, is more likely to be in Alvarado's camp to press more aggressively for pension reform, while Gerston said Supervisor Joe Simitian, a former state legislator, would be the swing vote.

"He brings his own strengths to the table as someone who has benefited from being in the Legislature and understands these issues from a different light than these other guys would," Gerston said. "He's the grown-up in the room."

Simitian this year helped elevate the urgency of the county's need to pay down the retiree health care unfunded liability. He has pointed out that 12 years ago, the last time he was on the board of supervisors, that liability was about $70 million. It now amounts to a $1,000 liability for every man, woman and child in the county.

"The next board member will face some very hard choices along with the rest of our four board members," Simitian said.

"While our economy is undoubtedly picking up, we have got an obligation to address" both issues sooner rather than later, he said.

The issue of county pension reform has surfaced at almost every District 2 candidate forum leading up to Tuesday's runoff.

At a San Jose Rotary Club forum last week, Chavez -- the former South Bay AFL-CIO Labor Group leader -- deflected the possibility that her ties to unions and their financial support in this campaign would make her a rubber stamp for them.

"My highest obligation has and always will be (to) the residents that I serve," she said.

Chavez recently told this newspaper that there is "no single silver bullet solution" to solve the unfunded liability, but that any pension reform must be negotiated with employees to avoid San Jose's legal battle. She has said options could include increased employee contributions, increasing the vesting age for employees and ensuring the full payment of the annual obligation for retiree health care debt is paid.

The board in June agreed to pay $115 million toward that debt this fiscal year, and intends to continue making payments. In August, it will consider an ordinance that would mandate the county pay off the debt at $233 million annually for 30 years beginning in 2018.

Alvarado, meanwhile, has said that if elected, reducing both the retiree health care and pension debts would be among her highest priorities. She said she would approach all options in the context of a transparent and "ongoing good-faith labor negotiations framework."

But she also would like to explore options being tried in other areas, including San Diego, where new employees are being offered a 401(k) plan in lieu of the existing pension offering. "Alternatives like this one need to also be put on the table," she said.